FLC 6.06% 17.5¢ fluence corporation limited

That is not quite right.Their primary product, Phoslock, the...

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    That is not quite right.
    Their primary product, Phoslock, the phosphorus binder requires a phased application approach. Due to the size of the water bodies they are targeting in China, this application may be made monthly over the course of a few years. As such, each contract has a consistent recurring revenue base, at a circa 50% gross margin. Even once the initial treatment is complete after a few years, source pollution will continue, so less regular maintenance applications may be required to maintain the required water standard. This recurring revenue base is what shareholders love. Infrastructure is lower margin, relatively expensive, slow to build and disrupts the natural environment.

    In terms of China, the budget where the funding for lake/river treatment comes from is usually the same budget where rural sewage treatment comes from. The whole reason Emefcy/Fluence are in China for MABR/SUBRE is due to the rectification of water bodies, Fluence treats one of the primary pollution sources (rural domestic sewage), Phoslock treats the downstream result of that previously untreated sewage (plus agricultural runoff) entering water bodies (high phosphorus levels leading to algae blooms).

    Phoslock once they have momentum, will be an easier sell in China. There is less competition for the specific treatment they provide, it also is not harmful to the environment. Once application of Phoslock starts, results can be seen almost immediately. It depends whether they are able to scale up effectively, whether any competitors manage to copy the product and enter the market, and whether they are able to secure enough raw material to satisfy demand.

    Because they have momentum in China while they are now profitable and in a good financial position, every bit of growth, and every bit of potential in their pipeline, will improve their financial position and help them to expand further.

    There is also almost unlimited potential around the world, as algae blooms thrive as pollution increases and world temperatures become warmer. Other chemical means of treatment have environmental downsides, while mechanical treatment is costly and time consuming to build, and expensive and energy intensive to operate and maintain. Phoslock is also able to be allied to ponds, rivers, lakes and reservoirs.

    Fluence are treating Ivory Coast lagoon water to potable standards. The lagoon they are drawing from has blue algae issues which requires complex treatment. As water shortages continue around the world and both companies grow, Fluence and Phoslock are likely to overlap and be treating the same bodies of water. Fluence for sewage discharge into the water bodies, and drinking water drawn from those water bodies. Phoslock for phosphorus contained in the water bodies and sedimentation below.

    I am not a PET investor, but I respect their potential. However, for what they have currently achieved, I am not convinced of their current market cap. It is similar to Emefcy when it was over $1, however their profitability and cash position means that they are a much safer investment than Emefcy were at the time. They now need a period of execution to prove out that potential. Their other product divisions also have some momentum.

    Fluence will get to a similar stage once profitability is reached, however that will require a few more contract wins and some successful project execution.
 
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